LukeWarm

Who would you prefer as UK Prime Minister?

I'm struggling with something. Bitcoin broke my brain and I am genuinely unable to look at the equity markets in the same way anymore. I am not sure it is possible to ever go back. Everything looks extremely overvalued. I see people doing very well with their different equity positions but my mind just cannot get over the 50 or 100 P/E ratios. It is easy to be directionally correct. AI will do well, but knowing the destination and knowing the price you should pay to get there are very different things. The deeper problem is that decades of cheap money and monetary debasement have completely distorted what value means. When the cost of capital is artificially suppressed, any future earnings stream can be justified at almost any price. We have been trained to accept valuations that sound money would never permit. I am happy everyone is making money, but I just do not see how these valuations project into a future defined by AI driven deflation, increasing competition and eventually a world where the cost of capital reflects reality. Sometimes I think this is a limitation, but maybe it is clarity. I am not sure anymore.

Perhaps dear old Charlie could get out of bed a tad earlier and sort out the shit house the whole financial gang are. Would be part of it prevent that. Probably 100% FFS, the corruption in this shit house is by design. Poor Charlie, his sleep must be lost…

Could be too hot on Monday for the mankini - I may have to resort to the micro-swimsuit.

$IQE (IQE plc) - The company that grows the crystal layers inside every AI laser on earth. Without their product, the entire optical supply chain stops. Every AI datacenter needs lasers to move data at the speed of light. Those lasers are made from a material called indium phosphide (InP). But you can't just buy a block of InP and carve a laser out of it. First, someone has to grow atom-thin crystal layers on top of InP substrates. Those layers are what actually generate photons. That process is called epitaxy. IQE does this. They sit at the narrowest point of the optical supply chain: between InP substrate makers and the laser companies that supply $LITE, $COHR, and every CPO module headed for $NVDA, $AVGO, and $GOOGL racks. What makes them special: IQE is one of only two Western companies that can grow InP epiwafers at scale. The other is Landmark Optoelectronics out of Taiwan. $LITE and $COHR grow some internally, but they consume it themselves. For the rest of the market, including every independent laser company, IQE is one of the only places to go. Goldman projects the total photonics TAM at $193 billion by 2028. Every dollar of that TAM needs InP underneath it. Lumentum CEO said on the Q3 FY26 call that the supply-demand gap in lasers is "greater than 30%" and they're buying CW lasers on the open market from competitors because they can't make enough. That demand flows upstream to epiwafer suppliers like IQE. The numbers: Revenue trajectory: ~£130M (FY2025, trough) to ~£220-270M (FY2027) to ~£300-420M (FY2028). The stock has crashed 18% in the last week to GBp 32, with no company-specific news. That puts it at roughly 10x 2027 earnings and 5x 2028 earnings. Market cap: £383 million. For context, the downstream companies that depend on IQE's product (Lumentum, Coherent) have a combined market cap of $138 billion. IQE supplies a critical input that both of them need, and it's valued at less than 0.3% of its customers. Where we think it can go (GBp 60-140): For the low end (GBp 60), we take FY2027 revenue of £220M at 12% operating margin and 18x multiple. That gives about £475M market cap, or roughly GBp 49. We round to 60 because MACOM's investment at GBp 19.8 creates a strategic floor. MACOM cannot afford to let IQE fail. For the high end (GBp 140), we take FY2028 revenue of £400M at 18% operating margin and 20x multiple. That gives £1.44B market cap, or roughly GBp 147. We discount slightly for dilution risk. What you're paying today (GBp 32): Our target range is GBp 60-140 (1.9x-4.4x from here). At GBp 32, you're paying roughly 10x 2027 earnings and 5x 2028 earnings for a company sitting at the tightest chokepoint in a $193 billion supply chain, with a £45M strategic backstop from a customer who can't live without them. The stock dropped 18% in a week on zero news while every industry source says the shortage is getting worse, not better. The simple way to think about it: Every AI laser needs crystal layers grown on indium phosphide. Only two Western companies do this at scale. One of them just crashed to 5x next year's earnings while three independent research sources call its product the number one supply bottleneck in the entire AI infrastructure buildout. Its biggest customer invested £45 million to make sure it survives long enough to fill their orders.